In the short run, an increase in the money supply is likely to lead to
A)lower unemployment and lower inflation.
B)lower unemployment and higher inflation.
C)higher unemployment and lower inflation.
D)higher unemployment and higher inflation.

Question

Quizplus · Accepted Answer

In the short run, an increase in the money supply typically lowers interest rates, which stimulates investment and spending. This can lead to lower unemployment as businesses expand and hire more workers. However, the increased demand can also lead to higher prices, or inflation, as the supply of goods does not immediately increase to match the higher demand.

In the Short Run, an Increase in the Money Supply